Tech Daily Dose

Sirius/XM Extend Merger Agreement

The waiting game continues. Sirius Satellite Radio and rival XM said Wednesday that they have agreed not to exercise their rights to terminate their merger agreement prior to May 15 and will extend the deal, as necessary, for rolling two-week periods as they await a decision on the pairing from the FCC.

The Justice Department ended its investigation of the deal in March and concluded that the combination of the two music companies would not be anticompetitive. FCC Chairman Kevin Martin said his agency would act after Justice released its findings but there's been no news thus far. Sirius and XM stakeholders blessed the deal last November.

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Antitrust Group Slams Satellite Radio Decision

The American Antitrust Institute on Tuesday slammed the Justice Department's approval of Sirius Satellite Radio's proposed merger with rival XM. The group had urged the agency to conclude that the pairing violates a section of the Clayton Act that requires courts to predict when the effect of a merger "may be substantially to lessen competition, or to tend to create a monopoly."

Justice stated that the merger will not be stopped "because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers." In doing so, the agency created a higher standard -- replacing "may" with "would" - and focusing only on the effect on prices, AAI said. Other antitrust considerations like diversity, choice, and innovation were "either ignored or shortchanged."

The decision also suggested that Justice officials used a lower standard for alleged efficiencies, accepting them if they "could benefit consumers." "The DOJ should enforce the law that Congress wrote, not the law they prefer," AAI President Bert Foer said.

When it came to market definition, Justice used a broad brush, including a variety of sources of audio entertainment. AAI believed the market should have been more narrowly defined as satellite broadcast radio because it has "many special qualities that set it apart" from other platforms.

As the matter proceeds to the FCC, the antitrust group said it would be "perfectly acceptable" for the Commission to reach a different conclusion from Justice given the different standards and concerns of the agencies.

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XM/Sirius: All Eyes On FCC

The FCC is expected to consider the pending merger between Sirius Satellite Radio and rival XM -- and approve it with conditions by May 1 or soon thereafter, Medley Global Advisors said in an e-mail update Tuesday. The Justice Department OK'd the pairing on Monday after more than a year-long review.

While FCC Chairman Kevin Martin may try to circulate an order seeking approval of the transaction in the weeks ahead, analysts said Congress and all five FCC commissioners maintain drastically different views on merger approval orders and the broader issue of media consolidation.

Martin's two Republican colleagues -- Deborah Taylor Tate and Robert McDowell -- are "likely to insist that no conditions be placed" on the deal but one exception may involve a condition supported by one or both to extend the FCC's indecency rules to the merged entity to ensure that edgy content is kept in check, Medley said.

The FCC's two Democrats -- Jonathan Adelstein and Michael Copps -- "may be inclined to support meaningful behavioral safeguards to reduce the potential for anticompetitive harms to occur given concerns raised by some ratepayer groups," analysts added. "It will be no easy task to strike this balancing act."

Possible conditions, according to the analysts, include:
- The a la carte/tiered programming package option
- Price caps (for three to five years)
- Spectrum spin-offs to noncommercial and minority programmers
- Mandatory device interoperability
- Prohibition on sole-source contracts on devices

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DOJ XM/Sirius Ruling's Impact On Wall Street

Here's my amateurish attempt at a reasoned [illustrated] analysis of the impact of the Justice Department's approval of the merger of Sirius Satellite Radio and rival XM. I'm quite sure that highly paid telecom analysts could articulate this better. Meanwhile, I bet the the folks at Sirius and XM are clinking their martini glasses right about now.

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DOJ Clears XM/Sirius Merger

CongressDaily TechCentral Breaking News:

The Justice Department on Monday afternoon cleared Sirius Satellite Radio's estimated $14 billion merger with rival XM, finding that the proposed pairing is not likely to substantially lessen competition or harm consumers. The ruling, which was more than a year in the making, divided members of Congress as well as competition and consumer watchdogs.

A number of lawmakers, including Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, D-Wis., expressed opposition to the merger. Justice's antitrust division said evidence did not show that the merger would let the parties hike subscription prices, partly because the two do not compete in important segments of the market. Justice also cited the widespread availability of alternative services like Internet radio and iPods.

SIRIUS and XM each obtained stockholder approval in November 2007 and the deal is still subject to FCC approval. More details will be available on TechCentral shortly.

Update: The full story is available here with input from Justice Department antitrust division chief Thomas Barnett; Sen. Kohl and Rep. Steve Chabot, R-Ohio; the National Association of Broadcasters; analysts and others.

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Former AG Warns Against Sirius/XM Merger

Former Attorney General Dick Thornburgh had some harsh words for the proposed merger of XM Satellite Radio and its rival Sirius in a Washington Times op-ed on Monday. In it, he wrote that "a failure in leadership at the Justice Department will expose this merger to a free-for-all at the FCC to create a regulated monopoly."

The deal "cries out for decisive action by the Justice Department under the Clayton Act, because it will completely eliminate competition in satellite radio," the Reagan administration's top lawyer said. "Current and future subscribers will be subject to whims of a monopoly, which will impose additional costs on consumers," he warned.

Why does the agency continue to deliberate? "The prolonged delay can be explained, at least in part, by the vast number of transactions piling up for department review as Wall Street hastily moves toward further industry consolidations before a change in guard following the presidential election," Thornburgh explained.

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XM-Sirius: We're Not Getting Any Younger

I don’t know about you, but I'm going stir-crazy waiting for federal regulators to act on the year-old merger proposal for XM Satellite Radio and rival Sirius. The Justice Department is expected to act soon, analysts say, and the FCC will follow suit.

For months, merger-watchers have been inclined to believe that the combination, albeit delayed, would get the government's blessing but now at least one analyst isn't as hopeful. The merger "now appear less likely," Pacific Crest analyst Erik Olbeter said in a research note.

"Prospects for the merger have become increasingly cloudy," he said, noting that the waiting game suggests Justice and the FCC are having trouble justifying the deal. Olbeter says he hears both agencies "are inclined to approve the merger" but that "an argument for the deal that does not set a significant, far-reaching precedent appears elusive."

(Hat-tip to Baron's TechTrader for pointing out Olbeter's note)

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Happy One-Year Anniversary, Sirius/XM Merger Bid

The Wall Street Journal's "Deal Journal" blog has an interesting post that reflects on the one-year anniversary of the pending merger of satellite radio giants Sirius and XM. I wrote about this issue in Wednesday's CongressDaily [click here to read the story].

WSJ blogger Stephen Grocer contacted the folks at FactSet MergerMetrics to help put in perspective how long the proposed pairing has been blowing in the wind. A few samples:

349 -- The number of transactions announced involving the full acquisition of a U.S. publicly traded company in which a definitive agreement was reached since the XM/Sirius announcement.

230 -- The number of those deals that have been completed. That includes Whole Foods’s acquisition of Wild Oats, which took roughly six months and one embarrassing lawsuit by the Federal Trade Commission before it was completed.

97 -- The number of those deals still pending. That doesn’t include Google’s purchase of DoubleClick, another high-profile deal that received regulatory scrutiny. That deal is awaiting European regulatory approval, but received FTC approval in December.

Read the full rundown here.

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'Microhoo' May Not Happen

Congressional antitrust crusaders might be able to cool their jets for a while. The Wall Street Journal reported Saturday that Yahoo's board of directors plans to reject Microsoft's unsolicited $44.6 billion acquisition offer. The decision apparently came after a series of meetings during which Yahoo's board decided the offer "massively undervalues" the Web firm.

The Journal cited an unnamed person familiar with the deal. Similar reports appeared later in the New York Times and the Washington Post. A letter from the Yahoo board formally rejecting the deal is expected to be issued Monday, the Post reported in its Sunday edition.

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'Microhoo' Hearing Postponed, More Scrutiny Planned

The House Judiciary Committee's Task Force on Antitrust and Competition Policy hearing on Friday to examine Internet competition -- namely, Microsoft's possible purchase of Yahoo -- has been postponed. Aides cited scheduling conflicts as the reason behind the cancellation.

Meanwhile, leaders of the Energy and Commerce Commerce, Trade and Consumer Protection Subcommittee said Wednesday that they will hold hearings this spring to tackle competition and consumer privacy issues raised by the merger of Web firms. Chairman Bobby Rush, D-Ill., said he will also request a confidential briefing from "appropriate government regulators."

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Yang's Internal Email On 'Microhoo'

The San Jose Mercury News published a confidential, internal e-mail from Yahoo CEO Jerry Yang that tells his employees that "absolutely no decisions have been made" about whether the company will take Microsoft's $44.6 billion buyout offer.

"This proposal is just that -- a proposal. And it was only made in the last 24 hours. You can be sure the board is going to review it thoughtfully and carefully, and do what's right for our great company." Read the e-mail here.

Meanwhile, Scott Cleland, president of the telecom research firm Precursor, says Google "must have been caught off guard last week by the Microsoft-Yahoo bid because they are reacting quite rashly and arguably in a way that is not in the best interests of their shareholders." Read more.

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Google Slams Proposed Microsoft/Yahoo Deal

Google wasn't prepared to comment on Microsoft's $44.6 billion bid for Yahoo on Friday when I wrote my initial CongressDaily story but by Sunday, the Internet giant was ready to gripe.

Google's top lawyer David Drummond wrote on the company's blog that "Microsoft's hostile bid for Yahoo raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."

He asks the following questions:

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?"

"Could the acquisition of Yahoo allow Microsoft -- despite its legacy of serious legal and regulatory offenses -- to extend unfair practices from browsers and operating systems to the Internet?

"Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' e-mail, IM, and web-based services?"

Policymakers around the world need to ask these questions -- and consumers deserve satisfying answers, Drummond concludes. Interestingly, his post hasn’t made its way onto the Google Public Policy blog yet.

Continue reading "Google Slams Proposed Microsoft/Yahoo Deal" »

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'Slow, Careful Review' Of Microhoo?

Friday's announcement that Microsoft wants to buy Yahoo for $44.6 billion not only riled privacy and antitrust watchdogs but it also excited analysts. Jessica Zufolo, a senior telecom analyst at Medley Investment Group, said the proposal "raises a lot of complications" if Yahoo takes the bait.

The combination would likely "stir a lot of unrest on Capitol Hill and in the consumer services community about the kinds of antitrust concerns that increased consolidation would mean" -- especially in the search market, which is dominated by Google, she said.

Time Warner, which owns America Online, as well as other competitors may oppose the merger at the FTC, Justice Department and in Congress, Zufolo said. There is little doubt that regulators and antitrust officials "will take a very slow, careful review" if Yahoo accepts Microsoft's offer.

Google's merger with online ad firm DoubleClick "was a large transaction and it indeed cleared the way for other transactions," she said. Yahoo's partnership with AT&T and Microsoft's filings at the FCC may also raise questions. "It opens up a Pandora's Box of federal regulatory review -- not to mention possible [interest from] state attorneys general.

A Google spokesman said "it would be premature to comment at this point" and an AOL official declined to comment.

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NY AG 'Pleased' With Microsoft Oversight Extension

U.S. District Judge Colleen Kollar-Kotelly decided late Tuesday that federal oversight of Microsoft's market power, which began in 2002 after a major antitrust settlement, will extend by 18 months [Read more in Wednesday's Technology Daily PM Edition]. Ten states, led by New York and California, lobbied the court to extend its watch over the software giant until 2012.

After deadline, Jay Himes, chief of New York Attorney General Andrew Cuomo's antitrust bureau, sent us a statement from Cuomo saying he was "pleased that the court recognized how important it is to keep the antitrust decree against Microsoft in place to protect consumers and promote fair competition."

The extension will help "ensure that Microsoft fully complies with the requirements of the consent decree and helps stimulate competition in the personal computers marketplace," Cuomo said.

John Lopatka, co-author of a recent book on the Microsoft case e-mailed with a different view. He said Kollar-Kotelly seemed "frustrated that a remedial provision that had a shaky justification from the beginning and has proven competitively unimportant has been difficult to implement."

The Pennsylvania State University law professor said Kollar-Kotelly's stance on Microsoft "is a bit schizophrenic." "The judge lauds Microsoft for working to resolve problems and simultaneously condemns it for allowing the problems to arise," he said.

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Google Merger Critic Requests Congressional Action

The Electronic Privacy Information Center plans to take its complaints about the FTC's approval of Google's multi-billion dollar merger with DoubleClick to Capitol Hill. The agency gave the controversial pairing its blessing on Thursday [see Technology Daily's PM Edition for more].

EPIC's director Marc Rotenberg said he will "bring this matter to the appropriate congressional oversight committees that are responsible for the agency’s funding and statutory authority." His group has also submitted a series of expedited Freedom of Information Act requests to the FTC regarding the commission's review of the merger.

The FTC "had an opportunity to establish the necessary safeguards for personal data and competition that could have allowed a global framework to emerge," Rotenberg said in a statement. "Instead, the commission's failure to act leaves the question of how best to address the privacy and competition implications of this deal to others."

The agency, which he notes, is "funded by taxpayer dollars," has the sole purpose of protecting the public interest. "It failed to do so today in a case that will have far-reaching implications for the Internet economy and the privacy rights of American consumers," he said.

Meanwhile, Sen. Orrin Hatch, R-Utah, told us he still has concerns with the merger "especially as it relates to competition and privacy." "Given the relative youth of the Internet, a merger of this kind is unprecedented and no one can predict how it will affect the industry," he said.

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